In applicant's copending application WO-02/21347 (filed 4 Sep. 2001), a ‘factored bidding’ online materials supply contract system is described. The system, involving a computer network including at least one buyer computer, an administrator computer and at least two supplier computers, makes it possible for a buyer to establish an underlying base supply contract with multiple approved suppliers, to prepare a ‘Request for Quotation’ (RFQ) and issue this as a ‘Bill of Materials’ (BOM) to those approved suppliers, and then to conduct an online bidding event over a computer network between panel members who choose to validate the BOM. In this bidding process, ratings are applied automatically to offers received from respective suppliers, in order to factor relevant supplier parameters into the tender process. When applied in a so-called ‘reverse auction’ process, the invention therefore affords dynamic comparison of offers as suppliers bid downwardly against one another to achieve the best result (lowest factored bid) for the buyer. The system and method described above has been tested extensively and shown to provide significant advantages over other approaches to online auctions.
In an alternative form, the invention involves an analogous ‘factored pricing’ process, allowing the buyer to apply factoring before issuing an RFQ to the prospective suppliers, or to allow a supplier to adjust specification criteria to effect ‘self factoring’ of an offer.
Under the rules of the method referred to above, the buyer sets a reserve price prior to a bidding event (eg prior to the release of the BOM), above which price he is not bound to accept an offer. Furthermore, the rules include the following:                The reserve is not disclosed to the suppliers until it is reached during the course of a bidding event.        Once the BOM is released, but before it has been activated (ie transferred from the ‘Pending’ page to the ‘Active’ page), the buyer may change the reserve price. This May occur, for example, once initial quotes have been received from suppliers as part of the BOM Validation phase (ie prior to auction commencement).        Once the reserve price is reached, the contract will be awarded to the bidder with the lowest factored bid at the close of the bidding event.        If the reserve is not reached, the buyer has the right not to proceed with any contract. If, however, the buyer chooses to proceed with awarding a contract, he should do so with the bidder holding the lowest factored bid at the dose of the bidding event, in order to retain the credibility, transparency and fairness of the process. The rules surrounding the event should preclude any post-event negotiation.        Once the reserve price is reached during the course of an online bidding event, this is indicated to all suppliers by an appropriate indicator or message on the Active (Bidding) screen.        
A contract is therefore automatically awarded at the close of bidding, subject to the reserve price being reached. This is consistent with the aim of a negotiation being to reach an agreement.
When the reserve price is not reached in the course of the event, the buyer in fact has a choice. He may award the contract after bidding is completed, to the supplier with the lowest factored bid. This is a manual process and can be invoked any time after the close of the event, and the system includes an ‘Award Contract’ function for this purpose on the ‘Active’ and ‘History’ pages. This option is usually exercised when there is no possibility to delay the contract award for the goods or services being bid upon, and the current function allows only the lowest factored bidder to be awarded the contract, which is in keeping with preserving the fairness of the process and rewarding suppliers for participating in the bidding event.
Alternatively, where it is not necessary to complete the contract, the buyer is not obliged to award the contract to any supplier. In keeping with the requirement for no post-event (offline) negotiation, the contract is simply put aside and will be re-tendered at a later date either by auction or by other means, in the same form or with a different lot structure.
With online auction events of this type, a further alternative exists. The buyer may be unhappy with the outcome and decide to abandon the auction result and the rules of the online system. Following this the buyer may decide to negotiate directly with one or more of the suppliers offline, which is dearly undesirable for a number of reasons. The transparency and integrity of the negotiation process are undermined, and the supplier may become disenchanted with the process and refuse to participate in future events. This risks damaging the credibility and integrity of the system, and means that the audit trail and historical record of the outcome of the negotiation are likely to be lost. Clearly, in such offline negotiations it is likely that supplier or product differences will no longer be factored in accordance with the overall bidding event.